Automated order protection trading system

ABSTRACT

Methods and systems for trading financial or commodity assets are presented. In particular, the invention relates to a trading system and method that operates with third party data and a Third Party Inside Market to promote fair and orderly transactions. In some embodiments, a client order or client bid/offer is protected by automated order protection (AOP), which may be a set of rules or specifications that can modify a client&#39;s order. In certain embodiments, an average weighted price function is used to protect a client order that might be larger than the best bid/offer. In other embodiments, an autofill, a tie-breaking, and a wait-for-follow process can be used to promote trading opportunities for dealers and/or clients.

CROSS-REFERENCE TO RELATED APPLICATIONS

This application claims the benefit of U.S. Provisional PatentApplication No. 60/647,525, filed Jan. 27, 2005, which is herebyincorporated by reference herein in its entirety.

BACKGROUND OF THE INVENTION

The present invention relates to systems and methods for tradingfinancial or commodity assets. In particular, the invention relates to atrading system and method that operates with third party data to promotefair and orderly transactions.

There exist a number of marketplaces for financial or commodity assetsthat are not organized on exchanges such as the New York Stock Exchangeor the Chicago Board of Trade. Rather, these markets are morefragmented, “over-the-counter” (OTC) markets. Some of the largestmarkets in the world, such as the markets for U.S. Treasury Bills,Notes, and Bonds, are not exchange traded and instead are typicallyserved by market-makers who are dealers in the securities orcommodities, and provide markets to customers who are not themselvesmarket-makers. Market-makers (“Dealers”) also deal with each other inorder to manage their market risk and inventories of tradable assets.Trading activity in such markets can be broadly divided into twosegments: (1) Inter-dealer trading, and (2) Dealer-to-customer trading.For example, The Federal Reserve Bank of New York reports the tradingactivity of Primary Dealers in U.S. Treasury securities in twocategories: Transactions with Interdealer brokers; and Transactions withOthers.

Dealers and customers (“Clients”) of Dealers traditionally trade witheach other in non-exchange based markets. The non-exchange markets allowthe Clients to inquire on prices of particular assets from Dealers andchoose whether to trade the assets at those prices. Sometimes a Clientwill receive a price and then negotiate further to reach a final price.In this context, clients are often referred to as “price-takers” andDealers as “price-makers.” One of the reasons for an inquiry-basedbehavior is that away from an exchange, market pricing is not entirelytransparent to all parties. Clients need to make inquiries to discoverwith certainty prices available for trading a particular asset.

Even with electronic innovations in Client-to-Dealer trading, themarketplace has largely remained bound to traditional patterns ofClient-to-Dealer relationships. Electronic Client-to-Dealer trading ofU.S. Treasury and Corporate bonds, for example, typically takes the formof inquiries sent by a Client to one or more Dealers. Dealers typicallyrespond with prices that are executable for certain periods of time, andthe Dealers may update these prices for a limited period of time as partof their response to the inquiry. Electronic trading has improved theefficiency of the price discovery and trade settlement processes, buthas not fundamentally changed the dialog of the trading process. Somesystems do permit Clients to send an order with an executable price to aDealer. In these the Dealer is authorized to execute a trade withoutfurther communication with the Client, but with limitations such as thenumber of dealers that may be utilized and/or the time period forexecuting the order.

Electronic innovations have proceeded in parallel and separate paths inthe two separate market segments of interdealer trading andClient-to-Dealer trading. Interdealer trading in large liquid butnon-exchange traded markets such as spot foreign exchange, and U.S.Treasuries may utilize fully electronic cross-matching systems operatedby interdealer brokers whose operation resembles that of electronicfutures exchanges or equity electronic crossing networks (“ECNs”) eventhough they are not actually exchange markets. These fully electronicinterdealer broker (“IDB”) markets provide continuous liquidity and anexecutable quality level of transparency. That is, it is possible to seelevels with associated quantities that actually can be executed inreal-time over a continuous period of time for those quantities shown.

Electronic trading systems in Client-to-Dealer trading on the otherhand, particularly multi-dealer systems, do not provide continuousliquidity and full transparency. Systems that do provide continuousliquidity do so only at levels fixed by the Dealer(s) and do not allowthe Client to specify their own price to for the purpose of continuousorder matching. Transparency is typically limited to indicative levelsthat may or may not show quantity information. These pricing levels maybe near executable levels and updated frequently, or they may beperiodic updates such as twice a day. Clients send an inquiry when theyhave a trading interest, such as to buy bonds, and typically dealersrespond with prices that are good for a short period of time (e.g., afew seconds) that may automatically update in order to slightly extendthe period of time that prices are available for execution. Frequently,upon receiving an electronic inquiry, the Dealer automatically respondsto the Client with an executable price. The executable price can begenerated using a process that utilizes third-party market data such asprices from the electronic IDB market and proprietary data such as theDealer's database of pricing relationships. The database can includepricing relationships between more liquid benchmark securities and lessliquid securities that are priced based upon the levels of the benchmarksecurities.

Clients obtain reasonably competitive execution by sending inquiries tomultiple dealers and comparing responses when they return. Thisexecution, however, is competitive only for the instant in time when theclient sends the inquiry. The timing characteristics of such inquirymodels do not directly support more “patient” trading strategies thatare considered a vital part of trading on exchanges, or even in tradingin the IDB markets for non-exchange based products. Patient tradingsacrifices the certainty of immediate execution for the possibility ofachieving a better price through the general volatility of the market.Patient trading also gives Dealers the ability to find more matchinginterests that may enable them to fill a Client order with less risk andpossibly cost to themselves; producing a more favorable trade executionfor the Client.

There are a variety of reasons for the separate nature of the electronicIDB markets and electronic Client-to-Dealer trading. IDB markets aretypically anonymous and often clear their trades through a centralnetting counterparty in order to reduce cost and risk for marketparticipants. Clients often do not wish to trade anonymously becausethey prefer to know their counterparty, and Clients are often noteligible to participate in central netting arrangements. This isespecially true when such nets involve mutualization of risk whichinstitutional investors, such as mutual funds, are not typicallypermitted to engage in by their own bylaws. Thus, Client-to Dealertrading systems do not provide the Client with the quality-of-executionbenefits of the fully electronic IDB systems such as access tocontinuous liquidity, transparency, trade matching opportunities, whileat the same time retaining the desired characteristics of traditionalClient-to-Dealer trading such as the flexibility to execute nonround-lot amounts and the ability to trade on a disclosed relationshipbasis.

SUMMARY OF THE INVENTION

Certain embodiments of the present invention provide investors(“Clients”), who transact securities in an over-the-counter (“OTC”)market (or other marketplace that is not an exchange) with the abilityto reference and benefit from the transparency as well as continuousliquidity available in third party markets such as electronicinterdealer broker markets (“IDBs”) that serve the professional Dealersof the OTC market. The market-making function is improved for bothDealers and Clients by providing continuous real-time opportunities fortrade matching between Dealers and Clients thereby improving liquidityand economic efficiency for both.

Some embodiments may guarantee to investors and Dealers that thematching process is fair and orderly by automatically providing priceprotection to any Client orders placed with Dealers. The priceprotection can guarantee that any potential trade matches for a givenasset will occur within a price range controlled by the most competitivemarkets for that asset on an electronic IDB market. That is, theclearing price or execution of any Client order filled by a Dealer willoccur within bounds automatically controlled by the TPIM, which is thehighest bid and the lowest offer, available on the referenced electronicIDB market at the time of order execution.

Some embodiments may also improve the liquidity discovery process forClients through the use of rule-based processing to maximize the breadthof Dealer liquidity available to the Client at the moment the Clientplaces an order. This process allows the Client to reach very broadly,and in a controlled manner, across the available Dealer set to attempt atrade match prior to pursuing the protected order process with Dealersas described above.

Certain embodiments of the invention may include a method of financialtrading comprising forwarding a client order to at least one exclusivedealer. The client order remains active for an exclusive time forpossible execution by the at least one exclusive dealer. Upon expirationof the exclusive time, if the client order remains open a transitioninto an open phase occurs where the client order is forwarded to atleast one permissioned dealer for execution by the at least onepermissioned dealer. Upon expiration of an open period time, if theclient order remains open a transition occurs into a protected orderphase where automatic order protection (AOP) rules protect the clientorder.

Some embodiments of the invention include a method of financial tradingincluding forwarding a client order to at least one dealer, entering aprotected order phase, applying order protection to the client orderbased on Third Party Market data, and modifying the client order basedon at least one of the TPIM data and Third Party Data.

Certain embodiments of the invention are a system for financial tradingthat include a server. The server receives Third Party Data and iscoupled to a client computer. The server provides Third Party Data tothe client computer and the server receives client orders. A dealercomputer is also coupled to the server. The server forwards clientorders to the dealer computer and an automated order protectionprocessor implemented in the server. The automated order protectionprocessor determines whether to transition the client order to an orderprotection state based on Third Party Inside Market (TPIM) data, and theorder protection processor modifies the client order based on at leastone of TPIM data and Third Party Data.

Some embodiments of the invention are a system for financial tradingincluding a first means for providing a server. The first means receivesthird party data and is coupled to a second means for providing a clientcomputer. The first means provides third party data to the second meansand the first means receives client orders. A third means for providinga dealer computer is also coupled to the first means. The first meansplaces client orders with the third means and a protection means forprocessing automatic order protection is implemented in the first means.The second means checks TPIM data against the client order to determinewhether to apply order protection to the client order, and the orderprotection modifies a price level in the client order based on the TPIMdata.

Certain embodiments are a method of financial trading involving a clientand at least one dealer that include forwarding the client order to atleast one exclusive dealer. The client order remains active for anexclusive time for possible execution by the at least one exclusivedealer. Upon expiration of the exclusive time with the order remainingopen a transition occurs into a protected order phase where automaticorder protection (AOP) rules protect the client order.

In certain embodiments, elements such as: an average weighted pricefunction that calculates order protection levels using prices for atleast one of bids and offers; an autofill function that fills a clientof order when there is a price difference between a client and dealer;and a wait-for-follow processing that applies order protection if aninversion of TPIM levels relative to the client order level occurs canbe combined either separately or as a set with any of the describedembodiments.

BRIEF DESCRIPTION OF DRAWINGS

The detailed description of the present application showing variousdistinctive features may be best understood when the detaileddescription is read in reference to the appended drawing in which:

FIG. 1 illustrates a computer user interface that may be utilized by aClient in an embodiment of the invention;

FIG. 2 illustrates an order panel for the computer user interface ofFIG. 1 according to an embodiment of the invention;

FIG. 3 illustrates the topology of an electronic trading systemconnecting Clients and Dealers according to an embodiment of theinvention;

FIG. 4 is a flowchart showing an order matching method according to anembodiment of the invention;

FIG. 4A is a flowchart showing an order matching method involving twophases according to an embodiment of the invention;

FIG. 5 is a flowchart showing a protected order phase according to anembodiment of the invention;

FIG. 6 is a flowchart showing further details of an automated orderprotection process according to an embodiment of the invention;

FIG. 7 is a flowchart illustrating an autofill method according to anembodiment of the invention;

FIG. 8 is a flowchart showing further details of the exclusive phasematching method according to an embodiment of the invention;

FIG. 9 is an example of a trade order manager in the user interface ofan embodiment of the invention; and

FIG. 10 is an example of a trade blotter in the user interface of anembodiment of the invention.

DETAILED DESCRIPTION OF THE INVENTION

Before explaining at least one embodiment of the invention in detail, itis to be understood that the invention is not limited in its applicationto the details of construction and to the arrangements of the componentsset forth in the following description or illustrated in the drawings.The invention is capable of other embodiments and of being practiced andcarried out in various ways. Also, it is to be understood that thephraseology and terminology employed herein are for the purpose ofdescription and should not be regarded as limiting.

As such, those skilled in the art will appreciate that the conception,upon which this disclosure is based, may readily be utilized as a basisfor the designing of other structures, methods and systems for carryingout the several purposes of the present invention. It is important,therefore, that the invention be regarded as including equivalentconstructions to those described herein insofar as they do not departfrom the spirit and scope of the present invention.

For example, the specific sequence of the described process may bealtered so that certain processes are conducted in parallel orindependent, with other processes, to the extent that the processes arenot dependent upon each other. Thus, the specific order of stepsdescribed herein is not to be considered implying a specific sequence ofsteps to perform the process. Other alterations or modifications of theabove processes are also contemplated. For example, furtherinsubstantial approximations of the process and/or algorithms are alsoconsidered within the scope of the processes described herein.

In addition, features illustrated or described as part of one embodimentcan be used on other embodiments to yield a still further embodiment.Additionally, certain features may be interchanged with similar devicesor features not mentioned yet which perform the same or similarfunctions. It is therefore intended that such modifications andvariations are included within the totality of the present invention.

Systems and methods of certain embodiments of the present inventionrelate to a computerized system that is operated by a third partyintermediary. The computerized system provides new ways of processingtransactions in government securities and enables more efficienttransactions for investors. The system can be implemented to provideinvestor interface and/or trading screens on terminals or computers thatreside on a local area network (LAN) or a wide area network (WAN) whereremotely situated clients can communicate across a network with thethird party intermediary. Clients, which are not limited to the ultimateinvestor such as fund managers and may include traders and brokers forexecuting transactions are permitted to enter orders into the system.These orders may include setting a price limit at the level of thecurrent best bid, best offer, or any level manually by the client.

Certain embodiments of the invention utilize executable market data orThird Party Data from a fully electronic market. This Third Party Dataincludes real-time trade data and price data that is executable bymarket participants who have direct access to the executable Third PartyData. The Third Party Data can be maintained and presented in visualform on trading screens to support a Clients' trading decision processesas shown, for example, in FIG. 1. Also, the Third Party Data can be usedto control an automatic order protection mechanism that manages andpossibly improves client orders within a system that manages thematching of Client and Dealer orders or trading interests as shown, forexample, in FIG. 2. The Third Party Data can be combined with systemmarket data or any other suitable market data to form Third Party InsideMarket (TPIM) data. In some embodiments, TPIM can be the best bid withits size and best offer with its size, which is the tightest “inside”market found within the Third Party Data.

Referring now to FIG. 3, system 300 includes a software-enabled,computer-implemented trading system 310 for initiating transactions toserve Clients 330 which are not limited to the ultimate investor and mayinclude traders and brokers for executing transactions in accordancewith certain embodiments of the present invention. Although the tradingsystem 310 is shown in FIG. 3 as occupying a central function betweenclients 330 and dealers 320, it is to be understood that this is aschematic representation, and may differ in other embodiments. As willbe further explained hereinbelow, in some embodiments of the tradingsystem 310 include components running at the premises of clients 330 anddealers 320. In some embodiments, trading system 310 may be implementedon a server or any other suitable device. Further, dealers 320 andclients 330 may represent human users interfacing with trading systemapplication 325 and trading system application 335 which may beimplemented on computers that interact with trading system 310 in someembodiments. Trading system application 325 can be tailored to the needsof client 330 and may provide a user interface for client 330 to accessinformation provided by trading system 310 as well as to submit ordersto trading system 310. Trading system application 335 can be a differentinterface than trading system application 325, or trading systemapplications 325 and 335 can provide dealer 320 and client 330functionality. In certain embodiments, trading system application 325 istailored to dealers 320 for responding to client 330 orders.

Trading system 310 is directed to data processing systems and methodsfor implementing trading rules that support transactions. A hardwarearrangement with a plurality of processors, workstations, and networkinterfaces is one aspect of the invention. Transmission of client ordersto trading system 310 can be accomplished in any manner. However, orderinformation is preferably electronically effected via data transmissionover secure private communication networks for links with Dealers'systems 320, and preferably via secured communication channels overInternet or private networks for links with Clients 330. Client orderscan also include other information that describes or instructs tradingsystem 310 on how to process the client order.

In some embodiments, trading system 310 provides a direct connectionbetween it and one or more dealers 320. In other embodiments,transactions are conducted from Clients 330 to one or more dealers 320through the intermediary of trading system 310. Trading system 310 mayalso be configured to transmit information of a transaction to aClients' 330 or dealers' 320 in-house processing system for properrecordkeeping and accounting. Transactions passing through theintermediary of trading system 310 can also be modified by tradingsystem 310 before being forwarded to one or more dealers 320.

In operation trading system 310 attempts to find an optimal dealer 320for each Client order. While locating the optimal or predetermineddealer 320 in a timely manner, trading system 310 may be subject toprotection rules described below and others rules. For example, tradingsystem 310 can implement various investment rules, such as contacting aminimum number of dealers before completing a transaction. The noveltrading system 310 may fulfill these investment rules, which may berequired by some institutional clients, by enabling rapid distributionof orders to dealers 320, and by providing quick and efficientmechanisms for evaluating, collating, and transmitting a number of orderresponses to client 330 for further action. The order responses can beautomatically executed on behalf of client 330, if this is specified byclient 330, or the order responses can be reviewed by client 330 and oneor more order responses can be executed.

In some embodiments, orders are executed by reference to standardizedinformation that uniquely identifies various financial securitiesgenerally available from a reference database. The reference databasemay be online and networked to trading system 310 or locally connectedto trading system 310. Preferably, trading system 310 includes a localsecurities database 315, which stores descriptions of securities forfuture use whenever encountered by trading system 310. Securitiesdatabase 315 can be primed or supplemented with preferred lists ofsecurity descriptions and has no particular limits. In some embodiments,the structure of the database 315 is substantially matched to fieldsutilized in trading system 310 and/or dealers' 320 and clients' 330trading system application. Additionally, securities database 315 can beupdated at a specified time period from a remote reference database, tokeep it refreshed with the latest developments. The remote referencedatabase may be a third party database, such as a government securitiesserver, available through a network connection. In other embodiments, anevent driven update may be used to maintain synchronicity of data fieldsbetween securities database 315 and the remote reference database. In anevent driven update, when new or updated data is received at the remotereference database, this data is forwarded on to systems such as tradingsystem 310.

In certain embodiments, trading system 310 allows clients 320 to enterorders in price increments that are finer than the minimum incrementsavailable for trading directly in the interdealer broker market whichprovides third party data 350. Third party data 350 can be used bytrading system 310 to determine how a client's 320 order compares toother transaction data. For example, in an embodiment for trading inU.S. Treasuries, Clients 320 can enter orders in price units as small as⅛ of 1/32nd even if the minimum d trading increment for dealers on theIDB market is ½ of 1/32^(nd). Clients can enter finer increment ordersbecause dealers 320 may be willing to fulfill transactions from theirown supply of assets or can fulfill multiple client offers with an IDBtrade.

Fulfillment and matching of Client 330 orders may occur within amatching facility logic operated within an Order Manager 312 and anAutomated Order Protection Processor 311. As may be appreciated by oneskilled in the art, order manager 312 and automated order protectionprocessor 311 may be implemented in trading system 310 in any suitablemanner and are not necessarily discrete hardware or software components.In some embodiments, prior to submitting an order, client 330 may berequested to select from one or more dealers 320 (possibly limited to anumber such as five or as few as one) to whom the order is presented insection 110 of FIG. 1. Each selected dealer 320 may see the name and theorder terms of client's 330 order. Orders may be executed partially orin their entirety according to the order terms set by client 330. Also,depending on the order type, (e.g. Fill-or-Kill or Day as shown FIG. 1section 112) the selected dealer(s) 320 can have the opportunity tomatch against the order either instantaneously, and/or continuouslyuntil the order is filled or cancelled.

In some embodiments, orders are presented to a single dealer 320 and aClient's 330 order is actively managed by Automated Order ProtectionProcessor 311 and Order Manager 312 relative to levels extracted fromThird Party Data 350. Third party data 350 can be obtained from levelsexecuting on the Interdealer Broker market. Transaction information fromThird Party Data 350 is communicated to the Market Data API 314. MarketData API 314 can use the transaction information to extract levels atwhich particular securities are trading. Market Data API 314 may forwardextracted information to Automated Order Protect (AOP) Processor 311and/or Order Manager 312. AOP Processor 311 and/or Order Manager 312 canuse information from Market Data API to modify or cancel client 330orders. For example, if an order is unfavorable to client 320 based onthe extracted information (that is, the order causes an inversion versusIDB market levels), then the order can be adjusted to stay consistentwith current best levels in Third Party Data 350. Thus, AOP Processor311 and/or Order Manager 312 can protect client 330 from off-marketexecution and may create opportunity for actual price improvement.

While the topology and architecture of trading system 310 is describedabove, the system also optionally utilizes software and other componentsto visually present Third Party Data 350 and to provide client 330 withthe best possible trade execution among other things. Clients 330 mayeither: (1) enter orders within the current Third Party Inside Market ona particular asset with the hope of immediate execution, or; (2) enterorders outside of the current Third Party Inside Market with more“patient” trading strategies that favor price of execution over speed ofexecution. Third Party Data 350 is relevant and of sufficient quality toguide either of these strategies or other strategies that clients 330may use when trading with dealers 330. Also, Third Party Data 350 can beused to control an automatic order protection and improvement mechanismfor managing client orders within a system that manages the matching ofclient 330 and dealer 320 orders and/or trading interests.

Some embodiments of the present invention provide a user interface (seeFIG. 1) for clients 330 to enter orders to buy or sell a single asset,or to simultaneously buy and sell a collection of assets in a singletrade. The signal trade can be in two security trades such as swaps orrolls, or three asset combinations such as a “butterfly” where a shortmaturity and longer maturity bond might be bought and an intermediatematurity (in between the first two) might be sold. Additionally, client330 orders may be entered as limit orders where client 330 specifies aprice, a yield, or a spread limit to control the filling of the order.In certain embodiments, Third Party Data 350 allows client 330 toautomatically enter a limit price at the level of the current best bid,best offer, or any level manually. If desired, client 330 orders can beentered by a dealer 320 salesperson using the interface of FIG. 1 onbehalf of client 330 according to instructions received over telephoneconnection between a dealer salesperson at 322 and client 330 at 332.

In at least one embodiment, a client order must be filled at theclient's level or better. The user interface may include an order panel(see FIG. 2 for an example) that supports the entry of price, spread, oryield based Limit Orders, with Time-in-Force options such asFill-or-Kill, or Day, or Good-until-Cancelled. The system may alsosupport the options for All-or-None or Partials Accepted with respect tothe quantity specified in the client's order. Client 330 instructionscommunicated through trading system 310 and/or trading systemapplication are hereinafter referred to as a Client Bid/Offer (“CBO”)where client 330 bids to purchase or offers to sell an asset orcombination of assets grouped together as a single synthetic asset. ACBO can also be considered a client order which may be a Bid or Offerand any instructions communicated to trading system 310 by client 330.

In some embodiments, client 330 specifies a dealer 320 or group ofdealers 320 that Client 330 prefers the order to be initially directedto as shown in FIG. 1 section 110. These dealers are referred to as the“Exclusive Dealers,” which may be one or more dealers 320. In certainembodiments, client 330 can only select from among “PermissionedDealers,” dealers that client 330 has established an account withtrading relationships, established credit lines, and obtained permissionto transact on trading system 310 with optional credit line restrictionsfor such trading. Trading system 310 may maintain these relationships,permissions, and credit limits.

Client 330 can optionally and additionally select a second set ofdealers from among the Permissioned Dealers, with whom the clientparticipates with in Open phase matching, as described below. In someembodiments, the system can retain Open phase matching preferences witha default setting available so that client 330 does not need to re-enterthis information with each order.

Order matching can occur in three distinct phases:

-   1. An Exclusive Matching state-   2. An Open Matching state-   3. A Protected Order state

FIG. 4 illustrates a sequence of steps followed in flowing through thesethree phases in accordance with certain embodiments of the invention.Trading system 310, in conjunction with Order Manager 312, initiates thesequence at step 400, upon receiving an order or CBO, at step 405, thatclient 330 has entered into the system. In Exclusive Phase Matching step410, trading system 310 attempts to match the terms of the CBO with theterms advertised by the Exclusive Dealers. The Exclusive Dealers mayhave a limited period of time (“Exclusive Time”) within which totransmit into the system a matching counter-order. This time period maybe configured by client 330 within a system defined range. The exclusivematching process may be fully automated, with the dealers utilizing thetrading system APIs 313 for this purpose.

The Exclusive Phase Matching process shown in step 410 can begin with atie-breaking step 415, with detail of the tie-breaking processillustrated in FIG. 8. The tie-breaking process provides a shortinterval of time, such as 300 milliseconds, during which any dealermatching messages received in response to the CBO are considered to havearrived at the system at the “same time” as any other dealer matchingmessage arriving within the tie-breaking interval. Tie-breaking process415 can also provide for the option of operating trading system 310 witha price auction capability. A purpose of the tie-breaking mode 415 is toencourage the maximum participation of the dealers involved and toprovide the client with the greatest breadth of liquidity over long termuse of the system. The tie-breaking interval time may be short enough sothat any overall delay in execution time is minimal. However, it offersdealers 320 who might otherwise be at an infrastructure disadvantage theability to compete fairly to provide liquidity to clients 330. Forexample, a dealer 320 located at great geographic distance from tradingsystem 310 communication hub or hubs can compete for client flow even ifthat dealer were disadvantaged by an additional communication latency ofsay 5 milliseconds. As long as the system receives that dealer'smatching message within the tie-breaking period the matching message isconsidered for the client. Tie-breaking process 415 works to preservemaximum choices of dealer liquidity for the client, thereby increasingcompetition and providing more opportunity for trade execution. Theprice auction option allows for price improvement through dealers 320competing to fill the CBO. This option may further enhance client 330opportunity for execution with speed and a better price.

Tie-breaking process 415 begins at step 810 of FIG. 8. When thepre-established time interval expires at step 820, the number of dealerresponses or dealer matching messages are counted at decision 830. Ifthere are no matches then tie-breaking process 415 returns with no matchat step 840. If there is exactly one (1) match, the process returns withthat dealer matching message in step 880. If there are multipleresponses (i.e. greater than 1), then decision 850 tests whether priceauction capabilities are enabled. If the result is a “NO”, then one ofthe tied responses is randomly chosen in step 860 using standardapproaches for computerized random or pseudo-random number generation.The selected winning dealer match is returned in step 880. If decision850 returns a “YES” showing the price auction mode is enabled, then thedealer responses are examined in step 870 and filtered for best price(most favorable for the client). Decision 880 tests the selection(s)made in step 870. If there are tied responses after filtering for bestprice, then the process proceeds with tie-breaking step 860; otherwise,if there is one best response, then that dealer match is returned instep 880.

Returning to FIG. 4, after some time in exclusive phase matching step410, trading system 310 checks if the CBO has been matched, canceled, orthe timer expired at step 420. If none of the above options haveoccurred in step 420, the process returns a “NO” and trading system 310goes back to Exclusive Phase Matching step 410. If at least one of theabove options have occurred in step 420, returns a “YES” and tradingsystem 310 moves to step 430. At step 430, a decision is made regardingwhether the order was matched, cancelled, or open. An open order can bean order that remains unexecuted or unfilled. If the order wascancelled, then at step 430 trading system 310 can proceed to close theorder at step 425.

If a suitable matching counter-order or counter-orders from theExclusive Dealers is found for the CBO within the Exclusive Time, thenthe order is matched and filled. The matched and filled order then flowson to step 432 where processing forks into two parallel paths ofPost-trade processing in 435 for any matched trade amounts, and Ordercomplete checker of step 445 which determines if the CBO is completelyfilled. If the determination at step 445 is a “Yes,” then the process isterminated for this CBO at step 450; if the determination step at 445 isa “NO,” then processing continues with Open Phase Matching at step 440.

If the CBO doesn't match or is only partially matched in the Exclusivephase as described above, then the system proceeds or transitions toOpen Phase Matching 440. In Open Phase Matching 440, the CBO is sent toDealers 320 who Client 330 has specifically selected as a second set ofPermissioned Dealers, which may again include the Exclusive Dealers, formatching the order.

Open Phase initiates at step 440, with the selected Open Phase Dealershaving a limited period of time within which to transmit into the systema matching counter-order (the “Open Time”). This time period ispreferably configurable by the Client within a system-defined range, inthe same manner and with a similar value to the Exclusive Time. Thematching process can be fully automated, with Dealers 320 utilizing thetrading system APIs 313 for this purpose, and the Open Time wouldtypically be about 3 seconds. Flow iterates through steps 440 and 455unless Client 330 has selected no Dealers or until the CBO receives amatch, is cancelled, or the Open Time expires causing decision 455 toresult in a “Yes.” Step 465 then tests the outcome of Open Matching. Ifthe order was cancelled before step 465, then the order is closed atstep 460.

Otherwise at step 465, if a suitable matching counter-order orcounter-orders from the Open Phase Dealers is found for the CBO withinthe Open Time then the order is matched and filled. The matched andfilled order then flows on to step 467 where processing forks into thetwo parallel paths of Post-trade processing in step 470 for any matchedtrade amounts, and step 480 where it is determined if the CBO iscompletely filled. If the outcome of step 480 is a “Yes” then the flowis terminated for this CBO at step 485; if the outcome of step 480 is a“NO” then processing continues with Protected Phase Matching at step475.

If the CBO is still open and at least partially unmatched afterproceeding through Exclusive and Open states, then trading system 310progresses the CBO to the Protected Order state, shown at step 475. InProtected Order “PO” state the order is placed solely with the ExclusiveDealers, who have an opportunity to match all or part of the orderduring the time the CBO stays in PO phase 475. PO phase 475 persists andmay iterate with step 490 until the order is canceled by the client, istimed-out on the basis of the client's original Good-for-timeinstructions, is filled, or is partially filled. Protected phase is thelast phase and its completion will complete the order which may end upfilled through one or more executions, partially filled across one ormore executions, remain unfilled, cancelled by client instruction, ortimed out under good-for-time instructions. Depending on client 330instructions, a filled order or partially filled order across one ormore executions may be considered a match and trading system 310 movesto step 495. In step 495, post-trade processing is completed. This step,like steps 470 and 435, can consist of clearing, settling, and/oraccounting the order which may take place electronically, partiallyelectronically, or by another mechanism. After post-trade processing theorder is filled or completed at step 485 or alternatively if there is nomatch for the order the order is closed at step 498.

Protected Order phase 475 is further explained in conjunction with FIG.5 that shows the flow of system processing for Protected Order phase475, and FIG. 6 that details the Automated Order Protection process.These processes are controlled and implemented by Automated OrderProtection Processor 311. The processes in FIGS. 5 and 6 are used toactively manage the Client Bid/Offer relative to the best levels in aThird Party Inside Market. The Third Party Inside Market can be obtainedfrom Interdealer Broker Data, for example, or from Third Party Data 350.In some embodiments, Third Party Inside Market can be a combination ofThird Party Data 350 with current and previous executions and ClientBid/Offers on trading system 310. Protected Order phase 475 protects theclient from off-market execution and creates an opportunity for actualprice improvement.

FIG. 5 illustrates the logic managing the Protected Order process inaccordance with certain embodiments of the present invention. As shown,at step 510 a process is initiated whereby CBO data 515, which can alsobe considered an order in some embodiments, prompts step 520 to updateor refresh Third Party Inside Market (“TPIM”) real-time data 525. Step520 can continually, at different time periods, or upon a predeterminedevent check CBO 515 against the price levels in TPIM 525. TPIM data 525,represents the market on the same asset as specified in the CBO, withthe best bid (most expensive) and best offer (least expensive)available. In some embodiments, TPIM data 525 may also include bids andoffers below the best, which are optionally used by the system at alatter stage. The TPIM data can also include price levels of bids andoffers.

Trading system 310, with each iteration, establishes in test 530 whetherthe CBO has already been protected. That is, the system checks whetherthe CBO price level is presently modified by trading system 310according to Automated Order Protection (“AOP”) rules. The AOP rules caninclude instructions to modify an order or a CBO to a more favorableprice, to execute an order or a CBO within a certain period of time, tofill a CBO with multiple dealer's 320 bid/offers, and to partially fillan order or a CBO if an order is not filled during a predetermined timeperiod. If the CBO is not already protected (AOP Flag is False) thentest 530 returns a “NO” and processing flows to step 580 where the CBOis processed with AOP rules. The AOP processing of step 580 is furtherexplained below in conjunction with FIG. 6. After AOP processing 580trading system 310 returns to step 520 where TPIM data is updated fromTPIM 525 and the CBO or order status is checked. If the CBO shouldbecome no longer active due to completion, cancellation, or time-out,then this flow terminates at step 595.

If test 530 returns a “YES,” the CBO is already protected, and theprocess flows to decision 540 to test whether Client's 330 order levelequals the contra-side of the TPIM. That is, if Client's 330 bid equalsthe TPIM Offer level, or if Client's 330 offer equals the TPIM Bidlevel. If test 540 returns a “YES,” then the process flows back to step520 as no further protection action is required at these TPIM levels.

If test 540 returns a “NO” then the CBO flows to test 550. At step 550,trading system 310 determines whether the market has moved to levelsthat are more or less favorable to the client given that the CBO levelis not the same as the TPIM contra-side level since the CBO level waslast modified by AOP rules 580. If the TPIM contra-side levels (i.e.,TPIM bid for CBO_(OFFER), or TPIM offer for CBO_(BID)) are now lessfavorable to Client 330 then trading system 310 flows to step 570. Atstep 570, the CBO is “unprotected” either back to the original CBO levelor to the current TPIM level, whichever results in more favorable levelfor the Client. In certain embodiments, this is accomplished by rulesshown in step 570: For CBO_(BID) the new level equals the minimum of theoriginal CBO and the current TPIM Offer, else; for CBO_(OFFER) the newlevel equals the maximum of the original CBO offer and the current TPIMbid. Trading system 310 then moves to step 590 where the AOP Flag is setaccording to whether or not the current CBO level equals the originalCBO level.

If the result of test 550 is a “NO” then the CBO does not need to beunprotected, but instead may undergo further evaluation at step 560. Instep 560, the CBO is processed according to the AOP rules, which can beseen in FIG. 6. The CBO then flows to step 590 where the AOP Flag is setaccording to whether the current CBO level equals the original CBOlevel. After step 590, processing flows to step 520 where the iterationcontinues while the CBO is active.

FIG. 6 illustrates details of processing flow 600 of AOP processor 311in accordance with certain embodiments of the present invention. Afterstarting the process at step 610, step 620 tests whether a pertinentTPIM update is a price-only update, or whether a trade has occurred onthe market-side of interest (i.e., on the bid side if CBO is a bid, oron the offer side if CBO is an offer).

If step 620 is a price-only update, then the TPIM levels are tested instep 650 to determine whether the TPIM levels represent a “passiveinversion” relative to the current CBO level. This would be the case ifthe TPIM Offer is cheaper than the CBO bid, or if the TPIM bid is moreexpensive than the CBO offer. Either of these situations gives a firstappearance of an order that crosses the market and requires furtherexamination to determine whether order protection is appropriate. Ifthere is no passive inversion then step 650 simply returns “NO” and flowmoves to step 680 where control is returned to step 560 or 580. Incertain embodiments, the control can be returned to a module in tradingsystem 310 that invoked this portion of the AOP process.

Alternatively, if test 650 returns a “YES,” then a quantity test 655determines whether the TPIM quantity on the contra-side of the CBOcausing the inversion is greater than or equal to the CBO quantity,where the contra-side is the offer side for CBO_(BID), or the bid sidefor CBO_(OFFER).

If the quantity test at step 655 returns a “YES,” then the inversion isof sufficient quantity to invoke protection and flow moves to step 670where the CBO level is adjusted to the same level as the TPIMcontra-side level. Additionally, the AOP Flag is set to “True” andcontrol is returned to the calling module of trading system 310, step560, and/or step 580.

If the test at step 655 returns a “NO,” then decision 656 determineswhether the preference is to operate the AOP process with or withoutusing Average Weighted Price (“AWP”) statistics from Third Party Data350 or TPIM. In some embodiments, AWP computations are only possible ifThird Party Data 350, provides data showing bids and offers that arepositioned behind the best bid and best offer in the order stack.Alternatively, trading system 310 may have an internal stack wherebid/offers from dealers 320 are stored for a given security. Theinternal stack can be implemented through hardware or software and isused to calculate order fulfillment from multiple dealers 320bid/offers. For example, consider the order stack below for a givensecurity:

Size Average Stack Price Cumulative Cumulative Weighted Price PositionBid Offer Bid Offer Bid Offer AWP Bid AWP Offer 1 98.75 99.00 100 100100.00 100.00 98.75 99.00 2 98.65 99.10 150 90 250.00 190.00 98.69 99.053 98.50 99.15 85 75 335.00 265.00 98.64 99.08 4 98.25 99.75 200 175535.00 440.00 98.50 99.34 5 98.00 99.90 120 100 655.00 540.00 98.4099.45

The best bid and offer, 98.75 and 99.00 respectively, are at the top ofthe stack for size of 100 by 100. “Worse” bids (lower in price) andworse offers (higher in price) are shown in the lower rows, or stackpositions 2 through 5. The sizes (for example, units of $million for theU.S. Treasury market) are shown for each bid and offer at each level ofthe stack, or five levels deep in this case. In this example, theaverage price required to buy 265 from the offers on the stack would be99.08. This is the AWP for the best offers 99.00, 99.10, and 99.15 forquantities of 100, 90, and 75 respectively, computed as(99.00×100+99.10×90+99.15×75)/(100+90+75), or 26255.25/265=99.08.

More generally stated,

${R = {{CBO}_{QTY} - {\sum\limits_{i = 1}^{N - 1}Q_{i}}}},{{{and}\mspace{14mu}{AWP}} = {\left( {\left( {\sum\limits_{i = 1}^{N - 1}{P_{i}*Q_{i}}} \right) + {P_{N}*R}} \right)/{CBO}_{QTY}}}$where N=the stack position of the maximum visible cumulative bid/offerquantity on the order stack that is less than or equal to the Clientorder quantity CBO_(QTY); P=the price of the order at stack position ion the order stack; Q=the quantity visible on the order stack for orderi; and the computed value R is the residual quantity of the Client orderthat will be applied to the Nth price.

If cumulative quantity exists within the order that is greater than orequal to the quantity of the CBO and the system preference option is tooperate with AWP then decision 656 returns a “YES,” and trading system310 proceeds to step 657. At step 657 the AWP is computed for thequantity specified in the CBO. The AWP is computed from the averageweighted price using the CBO quantity in its entirety according to theprices and quantities displayed on the contra-side of the market. Forexample, if the CBO is a bid of 99.11 for 250 then to fill the entirequantity of 250 requires buying from all of what is offered in position1 and 2, and part of the 3^(rd) position offer in the stack above. Ashighlighted above in the stack, the cumulative AWP ranges from 99.05 inposition 2 to 99.08 in position 3. In this example, the AWP for aquantity of 250 is 99.07 because only a portion of the 3^(rd) positionwas used.

Client Bid AWP Price Qty @ Qty Protect? 99.11 250 99.07 Yes

The AWP may not always be found for the Clients' specified quantity. Forexample, if the CBO was a bid for size of 2000, and 2000 exceeds thetotal size available on the offered side of the market (it totals 1535in the previous example order stack) then it is not possible to computethe AWP for the CBO, and step 657 returns zero. If an AWP can be found,then decision 658 results in a “YES” and trading system 310 flows tostep 659. At step 659, the CBO is protected at a level equal to thecomputed AWP, the AOP Flag is set to “True,” and control is returned tothe calling module of trading system 310, step 560, and/or step 580.

Otherwise, if step 658 returns a “NO,” or if previous decision 656returned a “NO” (that is, the CBO was not operating with AWP enabled),the CBO flows to step 660. Step 660 tests whether the Wait-for-FollowFlag is True. If step 660 returns a “YES,” then the system proceeds tostep 670 where the CBO level is protected to the level of contra-side ofthe TPIM. Additionally in step 670, the AOP Flag is set to “True,” andcontrol is returned to the calling module of trading system 310, step560, and/or step 580. Otherwise, if the Wait-for-Follow (“WFF”) check atstep 660 returns a “NO,” the flow moves to step 680 where control isreturned to the calling module of trading system 310, step 560, and/orstep 580.

An alternative flow through step 620 results if there has been a tradingevent in the TPIM. If there was a trading update CBO moves to step 625and the WFF Flag is cleared (i.e., set to “False”). Step 630 checkswhether the TIPM has reported a trade event at a level through the CBOlevel, that is an “active inversion.” If step 630 results in a “NO” thenthere may be no need to protect the order, and process flow terminatesat step 680. Upon termination at step 680, control can return to callingmodule of trading system 310, step 560, and/or step 580. Alternatively,if test 630 results in a “YES,” then the active inversion is reacted to,and the CBO flows to step 635 that tests whether the quantity traded isthe same or more than the CBO quantity. If step 635 results in a “YES,”then the active inversion is of sufficient quantity and may requireprotection of the order, which is accomplished by flowing to step 670.If the test at step 635 results in “NO,” then the WFF Flag is set to“True” and the CBO flows to decision 640. At decision 640 theWait-for-Follow level is set equal to the TPIM of the last trade and theWWF is kept at true. The process terminates at step 680 and controlreturned to the calling module of trading system 310, step 560, and/orstep 580.

The WFF Flag represents a Wait-for-Follow state where Wait-for-Followprocessing can occur. If the CBO is in the Wait-for-Follow state, then apassive inversion of any quantity following an active inversion, evenquantities less than the CBO quantity, can invoke protection. Forexample, if a resting order in the market provokes an inversion for aquantity less than the CBO quantity, but this condition follows atrading event inversion, then it is assigned more “weight” by tradingsystem 310. In some embodiments, the assigning of more weight can leadto an overriding of the size comparison that takes place at, forexample, step 635, and the CBO is protected.

Wait-for-Follow processing captures price change events in the TPIM orThird Party Data 350 that might otherwise be filtered out by quantitychecks. This may occur in thin market conditions or where there areorders resting in the TPIM and the full order size is not visible forsome or all orders in the third party order stack. The determination ofwhether price levels have changed enough after a trade (i.e., the tradewas not a one off or spurious event) to warrant protection can besupported by waiting to see where the market comes to rest after thetrade. In certain embodiments, the amount of price change permittedbefore entering into a protected state can be set by client 330. Inother embodiments, if following a trade on the bid side, a new marketoffer rests at that last trade price or lower, or conversely on theoffer side a new market bid rests at that last trade price or higher,then the new resting levels are significant enough to enable protectionof the CBO.

An example of Wait-for-Follow processing is shown in the table belowwith a sequence of market events from sequence #1 to sequence #4.Sequence #1 shows a CBO, a Client bid with a price of 99.12 for aquantity of 100. The TPIM shows securities offered at 99.25 for a sizeof 65. The Client bid at 99.12 is below 99.25 and the AOP state is OFFas shown in the column at the right. In sequence #3 the market withinthe TPIM trades down to 99.08, where the “*” signifies that a trade isoccurring. Although the price level 99.08 is less than the Client bidlevel of 99.12, the AOP state remains OFF because the quantity traded is15, and is less than the Client bid quantity of 100. The AOP processordoes detect however an active (i.e., traded) inversion, signified by theAOP state “OFF,A” below. In this state a WFF Flag would be set to TRUEat decision 640 in FIG. 6. In sequence #4 the new offer side of the TPIMcomes in at 99.08, satisfying the condition of being less than or equalto the last traded level and also less than the Client bid price (i.e.,“crosses through the order level” as tested in decision 650 of FIG. 6).The Client bid is subject to AOP, modified and set lower to 99.08 eventhough the TPIM offer size of 50 is less than the Client bid quantity of100. The Client bid is set lower because the TPIM offer level hascrossed through the Client bid, causing a passive inversion immediatelyfollowing the active inversion in sequence #3.

Third Party Inside Market (TPIM) Time Client Bid Price Size TPIM TradesAOP Seq # Price Qty Bid Offer Bid Offer Level Qty State 1 99.12 10098.75 99.25 50 65 OFF 2 99.12 100 99.12 99.25 50 65 OFF 3 99.12 10099.08* 99.12 35 50 99.08 15 OFF, A 4 99.12 100 99.02 99.08 75 50 ON, P

Another feature of the Automatic Order Protection process for Clients330 and Dealers 320 preferred to as “Autofill.” Autofill can make iteasier for dealers 320 to fill a CBO of clients 330 by providing awindow in which a dealer response to a client CBO is filled. This may beuseful in circumstances where Third Party Data 350 showing a Third PartyMarket is moving rapidly, prices are changing in a volatile manner, andDealer 320 systems communicating with trading system 310 losesynchronization with respect to the latest updated Client Bid/Offer.Such a condition can arise, for example, from a race condition where attime t trading system 310 generated a new auto-protected level, and aDealer 320 system was transmitting a message to match the CBO level at atime t-i. At time t the message from Dealer 320 reaches trading system310, but it is to late as the new auto-protected level was alreadyenabled. Since the CBO level has changed, the Dealer match attemptfails, which can cause further iteration of the matching process.

In certain embodiments, an “Autofill” option is provided in order tomitigate the negative impact of such race conditions on Client orderfulfillment. The Autofill function can also make execution easier forDealers 320 to execute quickly in those circumstances where it is theirpreference to sell securities on the offered-side of the TPIM or buyingsecurities on the bid-side of the TPIM when the TPIM has slightmovements during the intervening dealer matching message transmissiontime. These slight movements in the TPIM can consequently change theauto-protected CBO level if the CBO is undergoing AOP processing at themoment the system checks the price terms of the Dealer message with theprice terms of the CBO.

The Autofill option can be selected on a message-by-message basis withinthe Dealer matching response to the Client Bid/Offer. If Autofill isenabled, the Dealer message may also specify an “Autofill Threshold”that specifies the tolerable limits of difference between the pricespecified by the Dealer and the current real-time TPIM level. If thethreshold is 1/32^(nd) of point for example, and the Dealer is willingto sell $1 million U.S. Treasury 2 Year Notes at price of 99-28 (i.e.,99 and 28/32nds points), but the TPIM offer side is now 99-27.5, theorder can still be filled because the difference of these two prices isonly ½ of 1/32^(nd). The match is able to Autofill since the pricingdiscrepancy is within the specified threshold.

In certain embodiments the Autofill option can be selected on aCBO-by-CBO basis by client 330. If client 330 selects Autofill and theCBO has been modified by AOP processor 311, the CBO may be filled by adealer matching message with a less favorable price. This may occur ifthe price in the dealer matching message was within the client's 330specified threshold and the price less than the client's 330 originallyspecified CBO price.

FIG. 7 illustrates an example of Autofill processing in accordance withcertain embodiments of the present invention. Autofill processing can beused during match checking steps 420, 455, or 490 of FIG. 4. As shown inFIG. 7, the Autofill process begins at step 705 with the receipt of aDealer matching message sent in response to a Client Bid/Offer bytrading system 310. The receipt and subsequent validation processing canbe implemented by Dealer Trading Application Programming Interface(“Dealer Trading API”) 313 and Automated Order Protection Processor 311.At step 715 the CBO and Dealer response are tested to check whetherthere are matching price terms. If test 715 results in a “YES” thenprocessing proceeds to step 775 where an order quantity match occurs. Ifhowever, test 715 results in a “NO” then processing checks the Dealermatching message may be in response to a “stale” CBO price at step 725.Step 725 tests whether the Dealer has enabled the matching message forAutofill treatment. If test 725 results in a “NO” then the Dealer matchis rejected and this matching attempt terminates at step 735 with an AOPfailure status returned to the Dealer. If step 725 results in a “YES”then step 745 determines whether the difference between the Dealer priceand the latest, potentially protected, CBO price exceeds either theDealer specified Autofill threshold or, if unspecified then a defaultthreshold. If the CBO is a bid then the test at step 745 is whether theDealer Sell price−CBO_(BID)>=Threshold_(AUTOFILL). Alternatively if theCBO is an offer, then the test is whether CBO_(OFFER)−Dealer Buy price>=Threshold_(AUTOFILL). If testing at step 745 results in a “NO,” thenthe difference exceeds the threshold and the matching attempt terminatesat step 755 with an AOP/Autofill failure status returned to Dealer 320.If test 745 returns a “YES,” then the difference is within the thresholdthe Dealer price is automatically set to the same level as the CBO levelin step 765 and the matching process proceeds to match for orderquantity at step 775.

FIG. 4A is an illustration of a flowchart of a two-phase embodimentrelated to the embodiment of FIG. 4 and in accordance with certainembodiments of the present invention. In the embodiment of FIG. 4A, ifdecision 420, which checks if the client order in Exclusive PhaseMatching 410 has been matched, canceled, or an Exclusive Time hasexpired, returns a “YES” the client order moves to decision 430A. If430A returns “Order Open”, then processing proceeds to Protected OrderPhase 475. If decision 430A returns “Matched” then the order flows tostep 432 where the order forks for parallel processing in steps 435 and445A. If decision 445A, when checking if the order is complete, returnsa “NO” then the balance of the order flows to Protected Order Phase 475.As shown in FIG. 4A, exclusive phase matching 410 can transition toprotected order phase 475 in some embodiments. In other embodiments,Open Phase Matching 440 may precede the transition to Protected OrderPhase 475. Further, Protected Order Phase 475 may be the only phase insome embodiments, with a client order entering directly into ProtectedOrder Phase 475. Protected Order Phase 475, in various embodiments, mayuse the Exclusive Dealers of Exclusive Phase Matching 410 for clientorder execution.

EXAMPLE CASES

Note that all prices used in these examples adhere to US Treasury marketprice conventions that use 32nds rather than decimal fractions where theprice consists of a whole number “handle” such as 99 and a fractionalfigure that represents 1/32nds of 1. The third place of the fractionexpression represents ⅛ths of 1/32nds and can be any digit from 1 to 7except that the digit 4, for 4/8 or ½ of 32nds is usually written as a“+”. So for example 99-26+is interpreted as 99 and 26.5/32, or 99-267 is99 and (26+⅞ths)/32.

Client order gets filled at 99-266 by dealer at client's specified levelunaffected by AOP since client level is within the TPIM.

TPIM TPIM Bid Client Order TPIM Offer Size 99-26+ Buy 20 @ 99-266 99-2725 × 25

Client order gets filled at an improved level of 99-26+ after TPIM Offermoves to 99-26+ as shown in the second row, and AOP moves client's orderto match the new TPIM Offer side:

TPIM TPIM Bid Client Order TPIM Offer Size 99-26+ Buy 20 @ 99-26699-27   25 × 25 99-262 Buy 20 @ 99-26+ 99-26+ 25 × 25

Client order gets filled at original specified level of 99-266 afterTPIM fluctuates. In the example below, in the second row the TPIM Offermoves to 99-26+ and AOP protects Client's Buy order by adjusting it tobe within TPIM. However, the Client's order is not filled at this leveland in the third row the TPIM Offer swings back to 99-27. Trading system310 then reverts the order to 99-266 in the third row, or unprotects, asTPIM Offer moves away and becomes more expensive. In the fourth row, theClient Order is filled at 99-266:

TPIM TPIM Bid Client Order TPIM Offer Size 99-26+ Buy 20 @ 99-266 99-2725 × 25 99-262 Buy 20 @ 99-26+ 99-26+ 25 × 25 99-26+ Buy 20 @ 99-26699-27 25 × 25 99-26+ Buy 20 @ 99-266 99-266 25 × 25

1. A computer implemented method of financial trading using a computertrading system involving a client using a client computer and at leastone dealer using a dealer computer in electronic communication with thecomputer trading system, comprising at least one of the sequential,sequence independent, and non-sequential steps of: electronicallyreceiving a client order by a server of the computer trading system fromthe client computer; electronically transmitting the client order by theserver of the computer trading system to at least one dealer computerused by at least one exclusive dealer, the client order remaining activefor a limited period of time in an exclusive phase for receipt of adealer matching message from the at least one exclusive dealer, whereinthe at least one exclusive dealer is specified by the client; during theexclusive phase: waiting for a tie-breaking interval to elapse;selecting a dealer matching message by at least one of a price auctionand a random selection, if more than one dealer matching message isreceived from the at least one exclusive dealer in the tie-breakinginterval; and executing the client order at the selected dealer matchingmessage price; upon expiration of the exclusive phase and the clientorder remaining open, transitioning into an open phase where the clientorder is electronically transmitted by the computer trading system to atleast one dealer computer used by at least one permissioned dealer andthe client order remains active for a limited period of time in the openphase for receipt of a dealer matching message from the at least onepermissioned dealer, wherein the computer trading system identifies theat least one permissioned dealer based on a preexisting relationshipbetween the at least one permissioned dealer and the client; and uponexpiration of the open period time and the client order remaining open,transitioning into a protected order phase where the computer tradingsystem executes automatic order protection (AOP) rules to protect theclient order and the client order is executed by the computer tradingsystem responsive to the AOP rules.
 2. The method of claim 1, furthercomprising: receiving Third Party Inside Market (TPIM) data; andcomparing the TPIM data with the client order.
 3. The method of claim 2,further comprising adjusting the client order based on the comparison ofTPIM data.
 4. The method of claim 1, wherein the protected order phaseincludes an average weighted price (AWP) function that calculates anaverage weighted price of at least one of bids and offers to determineif AOP rules are used to protect the client order at a level equal tothe calculated AWP.
 5. The method of claim 1, wherein the protectedorder phase includes an autofill function that fills the client orderwhen the price difference between the client order and a dealer responseis within a threshold.
 6. The method of claim 1, wherein said step oftransitioning into an open phase further comprises: electronicallytransmitting by the computer trading system to at least one dealercomputer used by at least one exclusive dealer for possible executionduring said open period time.
 7. The method of claim 1, furthercomprising: determining expiration of the protected order phaseresponsive to one or more of: filling the client order by one or moreexecutions, partially filling the client order by one or moreexecutions, the client order remaining unfilled for a specified time,the client order cancelled by client instruction, and the client ordertimed out under good-for-time instructions.
 8. The method of claim 1,wherein execution of the AOP rules on the client order results in a morefavorable price for the client.
 9. The method of claim 1, wherein thepreexisting relationship between the at least one permissioned dealerand the client includes a trading relationship.
 10. A computerizedmethod for financial trading, comprising: receiving, by a computertrading system, a client order from a remote computing device associatedwith a client; providing, by the computer trading system, the clientorder to at least one exclusive dealer specified by the client, theclient order remaining active for a limited period of time in anexclusive phase for receipt of a dealer matching message from the atleast one exclusive dealer; during the exclusive phase: waiting, by thecomputer trading system, for a tie-breaking interval to elapse;selecting, by the computer trading system, a dealer matching message byat least one of a price auction and a random selection, if more than onedealer matching message is received from the at least one exclusivedealer in the tie-breaking interval; and executing, by the computertrading system, the client order at the selected dealer matching messageprice; identifying, by the computer trading system upon expiration ofthe exclusive phase and the client order remaining open, at least onepermissioned dealer based on a preexisting relationship between theclient and the at least one permissioned dealer; providing, by thecomputer trading system, the client order to the at least onepermissioned dealer, the client order remaining active for a limitedperiod of time in an open phase for receipt of a dealer matching messagefrom the at least one permissioned dealer; executing, by the computertrading system upon expiration of the open phase and the client orderremaining open, automatic order protection (AOP) rules to protect theclient order; and executing, by the computer trading system, the clientorder responsive to the AOP rules.
 11. A computer program product forfinancial trading, tangibly embodied in a computer readable storagedevice, the computer program product including instructions operable tocause a data processing apparatus to: receive a client order from aremote computing device associated with a client; provide the clientorder to at least one exclusive dealer specified by the client, theclient order remaining active for a limited period of time in anexclusive phase for receipt of a dealer matching message from the atleast one exclusive dealer; during the exclusive phase: wait for atie-breaking interval to elapse; select a dealer matching message by atleast one of a price auction and a random selection, if more than onedealer matching message is received from the at least one exclusivedealer in the tie-breaking interval; and execute the client order at theselected dealer matching message price; identify, upon expiration of theexclusive phase and the client order remaining open, at least onepermissioned dealer based on a preexisting relationship between theclient and the at least one permissioned dealer; provide the clientorder to the at least one permissioned dealer, the client orderremaining active for a limited period of time in an open phase forreceipt of a dealer matching message from the at least one permissioneddealer; execute, upon expiration of the open phase and the client orderremaining open, automatic order protection (AOP) rules to protect theclient order; and execute the client order responsive to the AOP rules.